Insurance Coverage for Statutory Damages Under Professional Liability Policies

Increasingly, companies are being named as defendants in putative class actions, like those brought under the Fair Credit Reporting Act and Telephone Consumer Protection Act, involving violations of statutes that contain provisions mandating certain damages or ranges of damages. One question raised is whether “statutory damages” are uncovered “fines” or “penalties,” or whether they are covered losses.

Our group recently authored an article in FC&S Legal’s Insurance Coverage Law Reportdiscussing coverage for statutory damages under professional liability policies. As discussed at greater length in the article, companies facing potential statutory damage awards or settlements should be mindful of four guidelines that can help ensure coverage for such damages under their respective professional liability policies: (1) where a statute calls the statutory damages at issue “damages” and/or separately sets forth punitive damages or a civil penalty, the statutory damages are compensatory in nature and do not constitute “penalties”; (2) where the exclusion is for “taxes, fines or penalties,” the term “penalties” must be read in context as payments owed to the government, not damages owed to individuals; (3) even if statutory damages are punitive or exemplary in nature, they may still be covered, because such damages are often explicitly covered in professional liability policies; and (4) any “penalties” exclusion must be strictly interpreted in favor of coverage and proven by the insurance company.